Featured Product

    BoE and FCA Encourage Switch to SONIA for Exchange-Traded Derivatives

    May 14, 2021

    BoE and FCA published a statement to support and encourage market participants to switch to new trading in sterling exchange-traded derivatives that expire after the end of 2021 from GBP LIBOR to SONIA, from June 17, 2021. In the period leading up to June 17, 2021, BoE and FCA will engage with market participants to determine whether market conditions allow the switch to proceed smoothly. The move is expected to facilitate a further shift in market liquidity toward SONIA, bringing benefits for a wide range of users as they move away from LIBOR.

    A key milestone recommended by the Working Group on Sterling Risk-Free Reference Rates is to cease initiation of new GBP LIBOR exchange-traded derivatives expiring after 2021, by the end of second quarter of 2021, other than for risk management of existing positions. The Working Group milestones have supervisory backing from the PRA and FCA as set out in a recent "Dear CEO" letter sent to regulated firms. To support market participants in meeting this milestone, the Working Group’s update on "Path to ending new use of GBP LIBOR linked derivatives" had suggested exploring the potential to change standard trading conventions in exchange traded derivatives to a SONIA basis during the second quarter of 2021. To determine support for, and the feasibility of, this approach, FCA has engaged with a broad set of participants in the exchange traded derivatives markets, including liquidity providers, bank dealers, buy-side firms, and exchanges. An FCA survey of these market participants identified strong support for a change in the standard trading conventions, which would see SONIA rather than LIBOR become the default traded instrument from June 17, 2021.

    This is an extension of the successful similar change to the interdealer quoting convention for linear sterling swaps during the fourth quarter of 2020. That change supported a substantial move in trading volumes from GBP LIBOR to SONIA over subsequent months and, thus, helped to reduce risk around LIBOR transition before the end of 2021. Extending this to exchange-traded derivatives is intended to increase alignment in sterling markets and help to accelerate a reduction in new LIBOR exposures. SONIA derivatives are likely to be the appropriate market convention for most contracts, particularly those maturing after 2021. The proposed change will involve market participants switching new trading in sterling exchange-traded derivatives that expire after the end of 2021 from GBP LIBOR to SONIA. These changes would not prohibit trading in GBP LIBOR exchange-traded derivatives, which would remain available until later in 2021 to facilitate risk management of existing positions, but would accelerate SONIA, rather than GBP LIBOR, becoming the primary source of liquidity. This, in turn, should encourage a greater proportion of GBP exchange-traded derivative trading volumes to switch to SONIA.


    Related Links 

    Keywords: Europe, UK, Banking, Securities, Derivatives, SONIA, LIBOR, Exchange Traded Derivatives, Benchmark Reforms, Interest Rate Benchmarks, FCA, BoE

    Related Articles

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News

    BaFin Consults on Resolvability Requirements for Resolution Planning

    The Federal Financial Supervisory Authority of Germany (BaFin) proposed to amend the “Capital Investment Conduct And Organization Ordinance” and issued a draft circular on the minimum resolvability requirements for resolution planning.

    June 10, 2022 WebPage Regulatory News

    EBA Consults on Certain Standards and Guidelines Under CRR and BRRD

    The European Banking Authority (EBA) proposed guidelines, for the resolution authorities, on the publication of the write-down and conversion and bail-in exchange mechanic, with the comment period ending on September 07, 2022.

    June 08, 2022 WebPage Regulatory News

    OJK Publishes Regulatory Updates for Financial Sector Entities

    The Financial Services Authority of Indonesia (OJK) is strengthening cooperation with the Australian Prudential Regulation Authority (APRA) and the Japanese Financial Services Agency (JFSA)

    June 03, 2022 WebPage Regulatory News

    EU Publishes Rules on DLT and Data Governance

    The European Parliament and the Council published Regulation 2022/868 on European data governance (Data Governance Act).

    June 03, 2022 WebPage Regulatory News

    EBA Publishes Phase 2 of Reporting Framework 3.2

    The European Banking Authority (EBA) published phase 2 of its reporting framework 3.2. The technical package supports the implementation of the updated reporting framework by providing standard specifications

    June 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8267